Business and NGOs Agree: Countries need to push ahead, not “double back” on subsidy reform and green recovery

A wave of public investment has emerged as countries look to build back better from the global pandemic, but research shows that this has both driven a positive green recovery and entrenched fossil fuel subsidy reforms. The Global Subsidies Initiative of the International Institute for Sustainable Development (IISD) and the Switzerland Federal Department of Foreign Affairs (on behalf of the Friends of Fossil Fuel Subsidy Reform) hosted a side event at the International Emissions Trading Association (IETA) and International Carbon Action Partnership (ICAP) Carbon Markets Virtual Pavilion to examine the trends of COVID-recovery finance, areas of progress (and lack thereof) on fossil fuel subsidy reform, and opportunities for the business community resulting from stimulus investments.

Highlights

The report Doubling Back and Doubling Down: G20 Scorecard on Fossil Fuel Funding indicates that, despite repeated pledges over the past several years to end inefficient fossil fuel subsidies, the G20 governments’ level of support to fossil fuels has dropped by only 9% since 2014–2016, hitting USD 584 billion annually over the last three years.
Additionally, according to the latest data from the Energy Policy Tracker, G20 governments have given at least USD 243 billion in additional support through recovery measures to fossil fuel-intensive sectors since the global COVID-19 pandemic began in January 2020.
There is a misconception that the renewable energy transition will be slow and expensive. Getting up to 80% renewable energy generation can be achieved in many jurisdictions in the short term with existing and cost-effective technologies. Directing stimulus to these green technologies can accelerate this transition even faster.

In light of the global pandemic and the fight against climate change, there has been increased discussion about aligning climate ambitions with socioeconomic priorities. Significant revenue will also be needed to fund a Paris Agreement-consistent COVID-19 recovery. This session highlighted the role that energy price and fossil fuel subsidy reform can have in increasing ambition on climate change, as well as building back better from the current pandemic.

Opening the session with welcoming remarks on behalf of the Government of Switzerland and the Friends of Fossil Fuel Subsidy Reform, Ambassador Stefan Estermann, Head of the Sectoral Foreign Policies Division, Federal Department of Foreign Affairs, Switzerland, set the tone, remarking on the crucial role that fossil fuel subsidy reform can play in addressing the climate change challenge. “A quick look at the new G20 Scorecard…shows that G20 countries alone have spent an average of $584 billion annually for the consumption and production of fossil fuels. Not only do these subsidies cost a lot and counter our efforts to fight climate change, but they also slow down the development of renewable and more sustainable resources,” Estermann remarked. He encouraged everyone to think about the type of energy sector we want to build and the impact that fossil fuel subsidies will have on clean energy transition. He also noted that subsidy reform could be an effective tool for green recovery.

Presenting the recently launched report Doubling Back and Doubling Down: G20 Scorecard on Fossil Fuel Funding, IISD Associate Anna Geddes provided clarity and transparency on G20 countries’ progress in ending support for fossil fuels. While noting that some perform better than others, the overall performance across the G20 countries is mediocre. Geddes noted that the team behind the report recommends that “G20 countries need to focus their phase-out efforts on reducing support to oil and gas because it is such a huge proportion of the funding that they are putting towards fossil fuels.” She closed by noting that fossil fuel funding continues to emerge in G20 countries, with USD 233 billion in additional support added since the global pandemic began.

Looking more broadly than subsidies to focus on overall pandemic recovery spending in the sector, Angela Picciariello of the Overseas Development Institute provided an update from the Energy Policy Tracker. Angela highlighted how the tracker is providing transparency on green and non-green public money commitments to the energy sector as part of COVID-recovery. Picciariello noted that, to a large extent, so far, we are not building back better, showing that, across all the countries covered by the tracker, 54% of public money commitments for energy worldwide is for fossil fuels and only 35% is for clean energy. However, she also noted, “when there is a will, there’s a way.” The large amount of money on the table is a good thing for transition, and there are examples of governments being creative in coming up with new tools to support energy production and consumption beyond conventional subsidies. She is hopeful for greener recovery packages as we move forward.

Ville Rimali, Director of Growth and Development at Wartsila, brought a business perspective to the issue of green recovery stimulus. He remarked that Wartsila is driving toward 100% renewable energy and a more sustainable world. His core message was about seeing the opportunity that the COVID-19 pandemic presents for the energy sector. The Wartsila Energy Transition Lab assessed changes in demand and consumption due to the pandemic and found that systems were resilient in 2020 but adapting was costly. Wartsila has also published its own assessment of how stimulus money can accelerate green recovery, noting that “stimulus money is not really driving towards the systems we would like to see and need to see in the future to meet lower emissions.” Finally, Rimali shared their atlas of renewable energy, showing how countries can meet 100% renewable energy in the most cost-optimal way, with up to 80% of energy needs able to be delivered by solar and wind power alone.

Concluding the session, Philip Gass, Lead for Transitions with the IISD Energy Program, noted that there has been progress in some areas of fossil fuel subsidy reform and that renewable energy is more competitive than ever. However, we are also likely to continue to see public investments in fossil fuels as countries look to reignite their economies in 2021 (as exemplified by the tracker and G20 report), driving the need to continue to push for reform and transition to greener energy sources. The IISD Global Subsidies Initiative pledges to keep pushing for transparency on subsidies and recovery spending with future events, ideally in person, in 2021.